Basic Principles of Insurance

Actuarial department

The actuarial department calculates policy rates, reserves, and dividends.

Alien Insurer

An Alien Insurer in the United States is an insurer whose principal office and domiciled location is outside the country.

Admitted Insurer

An admitted or authorized insurer is an insurer who has received a certificate of authority from a state's department of insurance authorizing them to conduct insurance business in that state.


A Broker represents themselves and the insured (i.e., the client or customer).

Captive Insurer

A Captive Insurer is an issuer established and owned by a parent firm for the purpose of insuring the parent firm's loss exposure.

Certificate of Authority

A Certificate of Authority is a license issued to an insurer by a department of insurance (or equivalent state agency), which authorizes that company to conduct insurance business in that particular state.

Claims Department

The claims department is responsible for processing, investigating, and paying claims.

Divisible Surplus

Divisible surplus is the amount of earnings paid to policyowners as dividends after the insurance company sets aside funds required to cover reserves, operating expenses, and general business purposes.

Domestic Insurer

A Domestic Insurer is an insurer with its principal or home office in a state where it is authorized.

Foreign Insurer

A Foreign Insurer is an insurer with its principal office or domicile location in a state different from the state it is transacting insurance business.

Fraternal Benefit Society

Fraternal Benefit Societies are nonprofit benevolent organizations that provide insurance to its members.

Industrial Insurer

Industrial Insurers make up a specialized branch of the industry, primarily providing policies with small face amounts with weekly premiums. Other names for industrial insurers include home service or debit insurers.


The transfer of risk through the pooling or accumulation of funds.


The insured is the customer receiving insurance protection under an insurance policy.


The insurer is the insurance company.

Lloyds of London

Lloyds of London is NOT an insurer, but a group of individuals and companies that underwrite unusual insurance.

Multi-line Insurer:

A multi-line insurer is an insurance company or independent agent that provides a one-stop-shop for businesses or individuals seeking coverage for all their insurance needs. For example, many large insurers offer individual policies for automobile, homeowner, long-term care, life, and health insurance needs.

Mutual Insurance Company

Mutual Insurance Companies are insurance companies characterized by having no capital stock, being owned by its policy owners, and usually issue participating insurance.

Non-admitted Insurer

A non-admitted or unauthorized insurer is an insurer who has not received a certificate of authority from a state's department of insurance authorizing them to conduct insurance business in that state.

Nonparticipating policy

A nonparticipating insurance policy, typically issued by stock companies, do not allow policyowners to participate in dividends or electing the board of directors.

Participating Plan

A participating plan is an insurance policy under which the policyowners share in the company's earnings through receipt of dividends and also elect the company's board of directors.

Private (Commercial) Insurer

Private or commercial insurance companies are companies owned by private citizens or groups that offer one or more insurance lines. Commercial insurers are NOT government-owned.

Reciprocal Insurer

A Reciprocal Insurer is an unincorporated organization in which all members insure one another.


Reinsurance is the acceptance by one or more insurers, called reinsurers, of a portion of the risk underwritten by another insurer who has contracted for the entire coverage.


A reinsurer is a company that provides financial protection to insurance companies. Reinsurers handle risks that are too large for insurance companies to handle on their own and make it possible for insurers to obtain more business than they would otherwise be able to.

Risk Retention Group

A Risk Retention Group is a group-owned liability insurer which assumes and spread product liability and other forms of commercial liability risks among its members.


A self-insurer establishes a self-funded plan to cover potential losses instead of transferring the risk to an insurance company.

Stock Insurance Company

A stock company is an insurance company owned and controlled by a group of stockholders (or shareholders) whose investment in the company provides the safety margin necessary in the issuance of guaranteed, fixed premium, nonparticipating policies.

Surplus Lines Insurance

Surplus Lines Insurance is nontraditional insurance only available from a surplus lines insurer. They offer coverage for substandard or unusual risks not available through private or commercial carriers.

Underwriting Department

The underwriting department is the department within an insurance company responsible for reviewing applications, approving or declining applications, and assigning risk classifications.